A Model for Calculating Interconnection Costs in Telecommunications

81 Pages·2003·14.99 MB·English

by  Paul Noumba Um, Laurent Gille, Lucile Simon, Christophe Rudelle

A Model for Calculating
Interconnection Costs in
Telecommunications

A Model for Calculating
Interconnection Costs in
Telecommunications
Guidebook prepared by Paul Noumba Um,Laurent Gille,
Lucile Simon,and Christophe Rudelle
THE WORLDBANK PPIAF
Copyright © 2004 This guidebook is a publication of the Public–Private Infrastructure Advisory
International Bank for Reconstruction and Facility (PPIAF).PPIAF is a multidonor technical assistance facility,aimed at
Development
helping developing countries improve the quality of their infrastructure
THEWORLDBANK
through private sector involvement.For more information on the facility,see
1818 H Street,NW
Washington,DC 20433,USA the website at www.ppiaf.org.
The findings,interpretations,and conclusions expressed in this guide are
Telephone [phone] entirely those of the authors and should not,in any manner,be attributed to
Internet www.worldbank.org
the PPIAF,the World Bank or its affiliated organizations,or to members of its
E-mail [email protected]
Board of Executive Directors or the countries they represent.Neither PPIAF
All rights reserved nor the World Bank guarantees the accuracy of the data included in this pub-
Printed in the United States of America lication or accepts responsibility for any consequence of their use.The
First printing:December 2003
boundaries,colors,denominations,and other information shown on any map
1 2 3 4 07 06 05 04
in this report do not imply,on the part of PPIAF or the World Bank Group,
any judgment on the legal status of any territory, or the endorsement or
acceptance of such boundaries.
The material in this publication is copyrighted.The World Bank holds
copyright on behalf of both the PPIAF and itself.Dissemination of this work
is encouraged and,in such instances,the World Bank will grant permission
promptly,and will not require a fee when reproduction is for noncommercial
purposes.Any request to photocopy portions of this publication should be
addressed to:Copyright Clearance Center,Inc.,222 Rosewood Drive,Dan-
vers, MA 01923, U.S.A., telephone [phone], fax [phone], or
through the Internet at www.copyright.com.
In regard to questions concerning this publication, or information on
ordering more copies,please refer to the PPIAF website,or contact PPIAF by
email at the address below.
PPIAF
c/o The World Bank
1818 H Street
Washington,DC 20433
Fax:[phone]
www.ppiaf.org
Email:[email protected]
ISBN 0-8213-5671-2
Library of Congress Cataloging-in-Publication Data
Modèle de détermination des tarifs d’interconnexion.English.
Amodel for calculating interconnection costs in telecommunications /
edited by … [Paul Noumba Um].
p. cm.
Includes bibliographical references.
ISBN 0-8213-5671-2
1.Telecommunications—Rates—Africa,Sub-Saharan—Mathematical
models.2.Telecommunications—Africa,Sub-Saharan—Costs—
Mathematical models. I.Noumba Um,Paul. II.Title.
HE8467.M6313 2003
384.6'4—dc22
2003067270
Contents
Foreword viii
Acronyms and Abbreviations ix
About the Authors x
1. Introduction 1
Preliminary Results Provided by the Cost Model 2
The Limits of the Model 4
2. Guidebook Overview 6
Cost Modeling Principles 6
User Guide 8
The Model 9
3. Cost Modeling Principles 11
Regulation of Interconnection 11
Essential Facilities 11
Cost Determination Methodologies 14
Economic Criteria for Assessing Costs 15
The LRIC Concept 18
Advantages and Drawbacks of LRIC 21
Definition of Interconnection Services 22
Definition of the Increment 23
Application to African Telecommunications Networks 25
The Average Size of an African Telecommunications Network 25
Nodes and Links 26
Transit 27
4. Modeling Principles
The Modeling Principles 29
A Long-Run Approach 29
A Forward-Looking Approach 29
An Efficient Approach 29
An Economic Approach, Not an Accounting Approach 30
A Bottom-Up Approach 30
The Working Units 30
The Model Structure 30
Applications of the Cost Model 32
v
Contents
5. User Guide 34
Filling in the Assumptions 35
Demand Assumptions 35
Main Technical Assumptions 38
Main Assumptions on Routing Factors 41
Main Cost Allocation Assumptions 42
Assumptions for the Mobile Network 45
The Results Sheets 47
The Results 47
Printing Reports 49
Testing the Sensitivity of the Results 49
Managing the Model 51
6. Operations of the Cost Model 52
Basic Principles 52
Logic of the Intermediary Spreadsheets 53
Capacities (Capa Sheet) 53
Transmission Capacities (Capa ElTr Sheet) 53
Infrastructure Capacities (Capa Infra Sheet) 54
Costs 57
The Mobile Network Calculations 58
Capacity of the Mobile Network (CapaMob Sheet) 58
Cost of the Mobile Network (Costs Mob Sheet) 58
Total Costs of the Mobile Network (Tot Mob Sheet) 59
Appendixes 60
Appendix 1:Economic Cost Approach 60
Appendix 2:Capital Cost Approach 63
Appendix 3:Radio Concentrator Solutions 66
Bibliography 67
Tables
1.1 A Sample of Interconnection Rates 1
1.2 Overview of the Telecommunications Sectors in Burkina Faso,Côte d’Ivoire,Cameroon,
and Zambia 3
1.3 A Sample of Interconnection Rates Calculated by the Cost Model 3
2.1 Typology of Nodes and Links in a Telecommunications Network 7
3.1 Correlation Matrix between Retail Services and Elementary Services 23
3.2 Matrix of Inputs Needed to Provide Retail Services 24
3.3 Snapshot of Telecommunications Development in Africa in 1999 25
3.4 Matrix of Transmission Links 27
A3.1 Number of Subscribers Depending on the Traffic per Subscriber (in mE) 66
Figures
1.1 Comparison between Interconnection Prices: Côte d’Ivoire 4
1.2 Comparison between Interconnection Prices: Cameroon 4
2.1 Cost Model Architecture 10
3.1 The Costs of a Multiproduct Firm: An Example for Five Products 14
3.2 Transition from Historical Accounting Costs to Economic Costs (LRIC) 19
3.3 Cost Structure 20
3.4 Entry Points of Interconnection Service 23
4.1 Cost Model Architecture 32
6.1 Cost Model Architecture 52
A3.1 Example of the Architecture of an IRT (TRT-Lucent Network) 66
vi
Contents
Boxes
3.1 Different Definitions Selected for Cross-Subsidization 17
5.1 Erlang 39
6.1 Sizing of the SDH Network (example of RCU-LS routes) 54
vii
Foreword
The tremendous economic and social impact Furthermore, it demonstrates the World Bank
resulting from pervasive, as well as effective, use of Group commitment to assist governments in develop-
information and communication technologies has ing the proper enabling environments and effective
convinced more and more African governments to regulatory institutions, and hence, contribute effec-
embark on the restructuring and progressive liberaliza- tively in mitigating the regulatory risk as perceived by
tion of their telecommunications sectors. potential investors.Helping newly established regula-
In a liberalized market,a procompetitive regulatory tory agencies develop their capacity has been under-
framework is a factor in establishing a level playing scored as a key pillar of the new World Bank Group
field for a favorable environment that encourages Information and Communication Technologies (ICT)
greater participation by the private sector. In that strategy (www.worldbank.org/ict).
respect, establishing a sound interconnection frame- We sincerely hope that this guidebook and its cost
work that ensures equal treatment,nondiscrimination model will be used by telecom regulators and opera-
among market players,and cost-based tariffs is assumed tors to settle interconnection disputes. However, we
to be the main engine for developing competition in would urge regulators to customize and expand the
the sector. cost model to better match their internal needs.
Determining interconnection tariffs is a complex The guidebook consists of six chapters.Chapter 1
and extremely sensitive task.In Africa,the absence of introduces the guidebook. Chapter 2 provides an
accurate cost information has rendered the situation all overview of the guidebook. Chapter 3 reviews cost
the more complex.In fact,some telecommunications modeling principles for calculating interconnection
regulators resolve interconnection disputes on the rates, while chapter 4 illustrates how these principles
grounds of available tariff benchmarking, although are integrated in the cost model.Chapter 5 is a user
these tariffs may not always be relevant. guide and chapter 6 reviews cost modules composing
This guidebook provides a sound methodology to the model and illustrates how interconnection costs are
help regulators and telecommunications operators computed.
adopt a tariff regime and deal with interconnection
disputes on the basis of a rigorous cost model. Mohsen A.Khalil
viii